As I write this piece, Congress is mired in efforts to repeal and replace Obamacare.
So much of that debate seems focused on the health insurance exchanges and subsidies that industry observers have underplayed the much larger hospital financial risk: phasing out ACA’s 12 million person Medicaid expansion AND reducing future Medicaid funding streams for those who remain covered.
If enacted, these cuts could expose hospitals to significant financial harm, requiring a strategic response. The very population health tools that hospital leadership were hoping to use to generate margins in capitated Medicare or commercial insurance contracts may have a higher purpose: to protecting disenfranchised Medicaid patients and the uninsured from harm as well as protecting hospital performance from more bad debts and lower Medicaid rates!
The Long and Winding Road to Risk
For most of the past eight years, hospitals and systems all over the country have been gearing up to manage population health. The premises for this development were that Medicare will pay them on a per capita basis, instead of the present per admission DRG system, and that commercial payers will follow.
Both of these assumptions appear to be unrealistic. Medicare’s Accountable Care Organization initiative appears to have stalled at 9.4 million lives (less than a fifth of Medicare enrollment) with no budget savings thus far for the federal government (http://www.npr.org/sections/health-shots/2015/09/14/440240225/medicare-fails-to-save-money-so-far-on-cooperative-care-experiment).
Meanwhile, commercial insurance based capitation appears to be falling (http://content.healthaffairs.org/content/35/3/411.full), not rising, as HMO-type plans are replaced by high deductible plans (http://www.chcf.org/publications/2016/11/commercial-capitation-sinks), which shift risk to patients, rather than care systems. In large parts of the U.S., providers are being paid deeper discounts in fee-based commercial insurance contracts, and are not “making it up on the volume.” And patients are not paying their increased share of the bill, since many do not have the cash to do so, raising insured “self-pay” bad debts (https://www.hfma.org/Content.aspx?id=52408).
Ultimate Use for Population Health Infrastructure is Managing Medicaid and Uncompensated Care
The rationale for care systems to employ manage care strategies for Medicaid will not be to manage capitated risk, but rather to reduce episodes of care for which they are not adequately paid. According to the American Hospital Association, hospitals typically lose 10% of their actual costs for treating Medicaid patients, and much more in some states http://www.aha.org/content/16/medicaremedicaidunderpmt.pdf). Of course, hospitals are already 100% at risk for care to the uninsured. They are thus markedly better off by investing in care management strategies that reduce the likelihood that those without insurance can avoid using the hospitals’ expensive services.
Major elements of this strategy employ the health system’s employed primary care physician groups to assess Medicaid and uninsured patients’ health risk profiles, and to use care management strategies driven by protocols that manage those risks to avoid unnecessary emergency room use and hospitalizations. Enhanced primary care models saved almost $1.5 billion for Illinois Medicaid providers and the program in avoidable healthcare use.
http://www.annfammed.org/content/12/5/408.full). Memorial HealthCare in Houston found that emergency-room based patient navigators helped to improve the health status of frequent ER users and avoid future ER visits https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4142498/).
Alliances with community-based public health providers also help. Community health center access has been shown to reduce avoidable hospitalizations https://www.ncbi.nlm.nih.gov/pubmed/26320918 to the extent that health risks that lead to avoidable hospital use are not strictly medical in nature, care systems will push out into the community and identify social determinants (homelessness, nutritional issues) as well as mental health co-morbidities where they can help http://www.hhnmag.com/articles/7818-why-hospitals-are-housing-the-homeless).
The largest and most systematic effort to organize hospitals to reduce avoidable care for Medicaid patients is New York State’s $8.3 billion DSRIP program, approved in 2014 and funded by a federal 1115 waiver (http://www.commonwealthfund.org/publications/fund-reports/2016/apr/new-york-dsrip-medicaid).
New York’s DSRIP program is intended to spur investment in population health strategies to reduce avoidable hospital use, and focuses specifically on reducing ER admissions. It is too soon to tell how effective New York’s program has been, but these collaborative efforts between the state agency and New York’s hospital system dovetails with hospitals’ extensive community benefit programs, which provide billions of dollars in additional health improvement support.
Co-ordination with Medicaid Managed Care Plans May Not Happen
These strategies discussed above may or may not integrate with the payment models used by the managed care companies that contract with state Medicaid agencies, who now enroll three-quarters of all Medicaid beneficiaries http://healthaffairs.org/blog/2016/05/05/twenty-first-century-medicaid-the-final-managed-care-rule/.
Risk is typically retained in those Managed Care Organizations (MCOs), which in turn pay hospitals and physicians per incident on a deeply discounted basis. Thus, it matters little whether hospitals are grossly underpaid by their state Medicaid agency, or the state’s MCO contractors – the effect is the same – large and likely increasing operating losses.
Hospitals need to make their own decisions about risk tolerance and engage as informed partners with plans and states. Hospitals that do not have a strategy for controlling avoidable utilization will be at the mercy of often one-sided contractual relations with their state’s Medicaid MCOs. Hospitals and care systems need not passively absorb future Medicaid funding reductions.
Nor can or should hospitals ignore the large unmet needs of the poor and near poor in their communities. Hospitals have an increasingly powerful array of tools and relationships that they can use to anticipate the healthcare needs of Medicaid and indigent patients before they arrive in the emergency room and help improve the health of their surrounding communities.
Author acknowledges helpful comments from David Mosley and Anne Jacobs, and research assistance of Michelle Mayes, all of Navigant.
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